Of course, this is often par for the course in a sensationalized 24/7 media world, where -- in some cases -- one hand may not be aware of the other hand's actions. We previously called out disconnects between mainstream headlines and major 2Q10 earnings reports in our July post, Psychology Remains Fickle as The Big Bad Wolf Ignores Fundamentals.
On a related note, the other week, someone mentioned to us something to the effect:
- "Now, all the media talks about is this 'double dip' idea and they seem to want us all to believe that it's happening. As a consequence, the stock market is as volatile as ever. I sure hope institutional investors aren't influenced by all of this nonsense!"
Right now, uncertainty rules the day, even among the "pros." No matter that the ratio of equity free cash flow yields to bonds is near 50 year highs (per our prior post). For example, Bloomberg published an article last week highlighting what we've also shared, Dividends Beating Bond Yields by Most in 15 Years (sourced here via Yahoo Finance/YHOO). The article relays a message similar to that relayed by Hersh Cohen on Wealthtrack and in our prior post, Where to Stash Your Cash, opening with:
- More U.S. stocks are paying dividends that exceed bond yields than any time in at least 15 years as profits rise at the fastest pace in two decades.
- Kraft Foods Inc. and DuPont Co. are among 68 companies in the Standard & Poor’s 500 Index with payouts that top the 3.80 percent average rate in credit markets, based on data since 1995 compiled by Bloomberg and Bank of America Corp. While Johnson & Johnson sold 10-year debt at a record low interest rate of 2.95 percent last month, shares of the world’s largest health products maker pay 3.68 percent.
- The combination of record-low interest rates, potential profit growth of 36 percent this year and a slowing economy has forced investors into the relative value reversal. For John Carey of Pioneer Investment Management and Federated Investors Inc.’s Linda Duessel, whose firms oversee $566 billion, it means stocks are cheap after companies raised payouts by 6.8 percent in the second quarter, data compiled by Bloomberg show.
- “That’s the tug-of-war that’s going on right now,” said Peter Vanderlee, a money manager at ClearBridge Advisors, a unit of Baltimore-based Legg Mason Inc., which oversees $659 billion. “If we are going into a double-dip recession, maybe we’re not as cheaply priced as one would suggest. The other side of it is that if we’re just experiencing a slowdown, but we’re avoiding a recession, then prices are clearly attractive.”
- advice from Graham and Dodd - "can't know future, therefore seek margin of safety."
- "in investments in present.... can't know what will happen in 2010 let alone 2017, but can observe two things: opportunities in front of us as now priced; and, how the world is positioning itself for an expected outcome."
FINALLY, we were pleased to see one headline today via Yahoo Finance:
BUT, history implies that humans tend to do the wrong things at exactly the wrong times. That this, as a group, we run to catch the bus along with everyone else, while paying no attention to who's driving the bus or in what direction. Here, the tag line from Bruce Berkowitz's Fairholme Funds is appropriate: "ignore the crowd."
BTW, we still have more to share on stocks versus bonds - this post was not intended as our promised second follow-up on this topic. We merely included the discussion of dividend yields versus bond yields to bring in the quote from the ClearBridge money manager (thank you to Bloomberg and Mr. Vanderlee!). We'll be back with a tad more.
Disclosure: long SSW, GSL, FLWS, WTW, YHOO.
© 2010 Jeffrey Walkenhorst
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